Optimal Asset Class Allocations
April 1, 2009 - Strategic Allocation
Based on Modern Portfolio Theory (MPT) and inferences from historical asset class returns, what are the best portfolio allocations for different levels of risk? In their February 2009 paper entitled “Strategic Asset Allocation: Determining the Optimal Portfolio with Ten Asset Classes”, Niels Bekkers, Ronald Doeswijk and Trevin Lam explore which asset classes add mean-variance diversification value to a traditional portfolio of stocks, bonds and cash and determine the weights of asset classes in optimal portfolios (maximum Sharpe ratio). Their total set of ten asset classes consists of stocks, government bonds, cash, private equity, real estate, hedge funds, commodities, high yield bonds, credits and inflation-linked bonds. Using mostly U.S. data as available for historical asset class returns and volatilities, they conclude that: Keep Reading